Central Bank limits time for CEO posts, spurring controversy

Egypt's Central Bank has imposed a nine-year limit on CEO positions, a move that is expected to force out 25 percent of managing directors in 42 banks across the country, head of the Central Bank Tarek Amer announced on Thursday.

The decision, which Amer said was made to "inject new blood" into the sector, has prompted mixed reactions from the banking and private sectors, ranging from objection and confusion to approval.

“In principle, this is a good thing for public banks. However, for private banks this would probably not be the case. It should be the right of the general assembly of the banks to choose their directors,” Mohammed Nader from the Private Equity Association told Mada Masr. “But for public banks, ‘new blood’ can be a good thing,” he added. 

Some private sector voices have called the move a “purge,” which could redraw the basis of corporate governance in Egypt, taking leadership decisions out of the hands of shareholders and into the hands of the Central Bank of Egypt. “The question is whether it should be in the hands of the banks’ corporate governance or not,” Nader explained.

Former head of the Alex Bank, Mahmoud Abdellatif, said the move is certain to scare away investors: “If I were a foreign investor, I would think 100 times before investing in Egypt in the absence of guarantees that decisions will not change suddenly, with zero notice.”

Alternatively, Angus Blair of Pharos Holding approved of the decision, telling Reuters, "I like the new rule for bank CEOs, since it should foster younger talent and help improve institutionalization."

The move affects the managing directors of a number of prominent banks in Egypt, including CIB chairperson Hesham Ezz al-Arab, who has held the post since 2002, and Bank Audi’s Hatem Sadek, who has held the post since 2006. Directors of the Arab African International Bank, Housing and Development Bank, National Bank of Kuwait-Egypt will also be affected, among others. Under the decision, consecutive and non-consecutive years of leadership will count towards the nine-year limit.

In a series of interviews over the weekend, Amer defended the decision, stating that he believes the policy will encourage greater loans for average Egyptians and will spur progress in the banking system.

The exact legality of the decision is unclear. “The CBE is already involved in some parts of the selection of bank CEOs and directors,” holding the authority to object to some personnel choices, said Nader, adding that around half of Egypt’s banks hold public money, allowing the CBE a say in who they hire. But while Egypt’s banking laws do allow the CBE some authority in approving leadership, other regulations protect the sovereignty of banks. There are indications that some lawyers and associations believe the move oversteps the CBE's authority.

Amer stated that the CBE has the power to make this decision as manager of Egypt’s banking system and that it will not back down from the policy. However, Nader believes the reactions of private banks to the move will prompt the CBE to soften or at least better explain the implications of the policy.